IVA Plan: A Guide
This guide is designed to provide you with hopefully all the necessary information that you might need to know about an IVA. You might find this a useful guide if you are contemplating taking out an IVA. Hopefully, we answer all the questions you were looking for in this guide and come away being clearer on the ins and outs of an IVA.
If you are based in Scotland you won’t be able to apply for an IVA as it is exclusive to England, Wales & Northern Ireland. However, a Trust Deed is the Scottish equivalent.
What is an IVA?
An IVA is a legal method you can use to pay your debts back to your creditors over a certain period of time, usually over a period of five years. It gives you the flexibility and affordability to pay all your debts under one management plan, using legal means in reducing your debts. The UK government introduced IVAs in 1986 as an alternative to bankruptcy.
To make your IVA a legal agreement, it has to be carried out by a qualified individual. This person is referred to as an Insolvency Practitioner (IP), which can be an accountant or a lawyer.
How does an IVA work?
An IVA plan is structured to enable you to pay more to your creditors than it would be possible with bankruptcy.
Since this is a mutual agreement with your creditors, you will have more control over your finances unlike in a bankruptcy.
You get a leeway to propose how your assets’ equity (your belongings with value) will be introduced into the debt settlement arrangement. You are not coerced to sell your property as it happens with bankruptcy.
In a nutshell, you are in a position to bargain over your debt repayment, and that is one reason that makes IVA a viable option for those struggling with debts.
For the agreement to be carried out as per the law, you should work with a certified Insolvency Practitioner (IP). This could be an accountant or a lawyer with immense experience and training in insolvency law. The IP is charged with the responsibility of conducting the IVA according to the law and making sure each party upholds their end of the bargain. For the IVA to be legally binding it has to be supported by at least 75% of debt value for those who vote for it. No creditor, even those who voted against your IVA can take any further legal action for the unpaid debts. Your debts are cushioned both legally and formally for the entire IVA period.
Furthermore, your creditors are barred from charging any more interest on the outstanding debt balances. No one has the authority to add any kinds of charges and costs to your debt.
Your IVA plan is in full force and the terms and conditions have to be followed to the letter. Normally, an IVA lifetime lasts for 5 years. If you have an equity clause as part of your deal, you can extend the IVAs lifetime by 12 months.
In other cases, it is possible to have a one-time payment IVA. It is referred to as lump sum IVA or full-and-final settlement IVA. Once the lifetime of your IVA expires, all your outstanding debts are written off. It does not matter that you have paid only a fraction of your original debt; the end of an IVA means you are free of any unsecured debts.
How to get an IVA?
The process of obtaining an IVA can be pretty straightforward and involves a few steps that include the following:
1. Obtaining an interim order
With the help of an Insolvency Practitioner, you can apply to the court for an interim order stopping your creditors from taking any action against you aimed at getting their money back while the IVA is being set.
This will include making phone calls, sending letters, messages or emails asking for their money. Such an order will also bar your creditors from making you bankrupt or getting court orders against you.
Interim court orders are quite rare hence your IP may instead help you get any court action against you adjourned.
2. Preparation of a comprehensive financial statement
Before you undertake to start an IVA, you will need to prepare a financial statement that will form the foundation of your application. This must, therefore, be done correctly as it will also help your IP come up with a repayment plan that best suits you.
Your statement should include some basic information such as a list of all your unsecured debts and details of any significant assets that you own like property or your car. You must also state your income including benefits, wages, pension, savings etc.
It is also necessary to provide a detailed list of your living expenses as this will also be used to calculate the IVA amount you can afford to pay each month. The role of an IVA is to ensure that you can pay back as much as you can realistically afford.
3. Writing an IVA proposal
Since you cannot set up an IVA yourself, your IP who is licensed to negotiate with your creditors on your behalf will help you come up with a written proposal that will be submitted to your creditors for approval or disapproval.
In this proposal you will agree to repay all or some of your debt over a given period of time which is normally between three to five years. After reviewing your financial statement, your insolvency practitioner will confirm the amount of money you will be required to pay each month towards your debts.
The IP will also prepare a report for the court with their opinion as to whether your IVA proposal will work or not. The proposal will largely depend on your financial situation and the possibility of your creditors accepting it. The IP takes into account your ability to repay the debts and the right of your creditors to be repaid.
4. Proposal review
Your IP will call a creditor’s meeting where the creditors will vote to agree or reject your proposal. This meeting is usually held at the insolvency practitioner’s office but the IP may also send a copy of your signed IVA proposal to all your creditors and they will have two weeks to review it and decide whether to approve or reject it.
Before an IVA becomes legally binding, all your creditors must agree to it. It is advisable to attend the creditor’s meeting so that you can also have the opportunity to represent your own interests. If a majority of your creditors accept your proposal, the court will be informed and the IVA will become legally binding to all your creditors including those that did not agree with your proposal.
5. Debt repayment plan
Once the IVA becomes legally binding, you will be required to start making your monthly payments to the IP who will then distribute this money among your creditors. If your financial situation improves during the IVA period, your monthly payments may increase and likewise if you situation deteriorates, the payments may reduce.
Once you comply with all your IVA requirements and you have made your final payment, you will be issued with a completion certificate and any other debt included in your IVA that you will not have cleared will be written off and you will become debt free.
You will need to get in touch with a debt solution specialist – they will then be able to start the process for you.
Note: It is important to understand that all those involved with the setup an IVA would be paid a fee for their services. This fee would be taken from your debts that have been negotiated.
IVA annual review
During the duration of your IVA, you will need to constantly check your IVA to ensure that it is going as planned and that you can still afford to pay the agreed amount. An adviser or your IP will conduct annual reviews throughout your IVA a process which involves checking your financial situation to make sure that you keep up with the agreed repayment plan.
An IVA could fail if you do not cooperate with your IP or you fail to make payments as agreed. If this happens your creditors or IP could make you bankrupt. However, in case your IVA fails for some reason, your financial or debt adviser can always take you through other available options.
An IVA is basically a contract with your creditors that allows you to pay off your debts in regular instalments. The IP will set up and manage the IVA and also act as an intermediary between you and your creditors. It is important to note that not everyone is eligible for an IVA.
In order to qualify for an IVA, you must owe two or more creditors and have debts that are typically over £15,000.
There several reasons why you may want to choose an IVA to deal with a debt problem. One of these is that your creditors will have to respect the IVA because it is legally binding which means that they will not take further action against you aimed at recovering their money during the period of the IVA.
An IVA is ideal for you if you have a budget that you believe you can stick to since the monthly repayments only have to be paid within a specific amount of time. After the repayment period ends, all you remaining debts covered in the IVA will be written off meaning that you will not owe anything to creditors even if there is a leftover debt.
An IVA is a convenient and affordable way to repay your unsecured debts and become debt free as quickly as possible.
Important things you should know before applying for an IVA
For a landlord or homeowner, your property will be attached as part of the agreement. This is called an equity clause and you have to comply with it before your application goes through.
Using your name for the agreement means you will be listed in the register for Public Insolvency. What this means is that your name and insolvency status can be viewed by any member of the public. Nevertheless, the agreement is categorised as a private matter between you and your creditors. Your employer does not get this information, and your insolvency will not be a press advertisement as typical with a bankruptcy.
By entering into an IVA agreement, your credit score takes some considerable heat for the next 6 years right after the agreement is confirmed.
For the entire term of your agreement, you are voluntarily asked to refrain from taking out any more credit.
Is an IVA the right solution to your debt?
An IVA is one of the many options to get you out of the deep pit of debts. It depends on the kind of situation you find yourself. What is true about an IVA is that it offers a flexible method to repay your debts and still have some control over your financial affairs. However, it is expensive and comes with a number of risks. Some of these risks include:
- Your pension and savings will be used as part of the repayment agreement
- For homeowners, you will have to seek a remortgage
- Its success is pinned on the majority vote of your creditors
Just like with any other debt settlement solution, you should not take an IVA at is face value. Take time to understand what you are walking into. If you feel like this is the way you want to follow, go for it.
Flexible debt solutions works as an intermediary. If you are looking to apply for an IVA through our site, we will assess your credentials and pass you onto a debt specialist suited to your needs – who will pay us a fee on introduction.